Professional Documents
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Blackbook Project On RLI and Evaluation of Insurance As An Investment Alternative
Blackbook Project On RLI and Evaluation of Insurance As An Investment Alternative
Mentor:
DR. T.N. CHHABRA
Reader,
Department Of Commerce,
Deen Dayal Upadhyaya College
SESSION 2008-2009
ACKNOWLEDGEMENT
A successful mission is never the outcome of the efforts of a single person. I would
like to express my thanks to few people without whom guidance and support this
project work would not have been in its present form. Firstly, I would like to take the
opportunity to thank gratefully the learned and experienced faculty and my guide Dr.
T.N. Chabbra and all the faculties who spared their valuable time for discussion with
me and helped to enrich it with their suggestions and comments.
-SHARAD SINGH
Declaration
This is to certify that project titled Inflation In India is outcome of my research
work and is not been submitted in part or full to any University for award of any
degree and diploma.
SHARAD SINGH
SCOPE OF INSURANCE
In todays corporate and competitive world, I find that insurance sector has the
maximum growth and potential as compared to the other sectors. Insurance has the
maximum growth rate of 70-80% while as FMCG sector has maximum 12-15% of
growth rate. This growth potential attracts me to enter in this sector and RELIANCE
LIFE INSURANCE has given me the opportunity to work and get experience in
highly competitive and enhancing sector.
The success story of good market share of different market organizations depends
upon the availability of the product and services near to the customer, which can
be distributed through a distribution channel. In Insurance sector, distribution
channel includes only agents or agency holders of the company. If a company like
RELIANCE LIFE INSURANCE, TATA AIG, MAX etc have adequate agents in
the market they can capture big market as compared to the other companies.
Agents are the only way for a company of Insurance sector through which policies
and benefits of the company can be explained to the customer .
TABLE OF CONTENTS
ACKNOWLEDGEMENT
SCOPE OF INSURANCE
1. INTRODUCTION
2. COMPANY PROFILE
12
3. CONCEPTUAL DISCUSSION
17
4. DATA ANALYSIS
23
33
ANNEXURES
BIBLIOGRAPHY
Chapter 1
Introduction
INTRODUCTION
The story of insurance is probably as old as the story of mankind.
Life Insurance in its modern form came to India from England in the year
1818. Oriental Life Insurance Company started by Europeans in Calcutta was
the first life insurance company on Indian Soil. All the insurance companies
established during that period were brought up with the purpose of looking
after the needs of European community and Indian natives were not being
insured by these companies. However, later with the efforts of eminent people
like Babu Muttylal Seal, the foreign life insurance companies started insuring
Indian lives. But Indian lives were being treated as sub-standard lives and
heavy extra premiums were being charged on them. Bombay Mutual Life
Assurance Society heralded the birth of first Indian life insurance company in
the year 1870, and covered Indian lives at normal rates. Starting as Indian
Senterprise with highly patriotic motives, insurance companies came into
existence to carry the message of insurance and social security through
insurance to various sectors of society. Bharat Insurance Company (1896) was
also one of such companies inspired by nationalism. The Swadeshi movement
of 1905-1907 gave rise to more insurance companies. The United India in
Madras, National Indian and National Insurance in Calcutta and the Cooperative Assurance at Lahore were established in 1906. In 1907, Hindustan
Co-operative Insurance Company took its birth in one of the rooms of the
Jorasanko, house of the great poet Rabindranath Tagore, in Calcutta. The
Indian Mercantile, General Assurance and Swadeshi Life (later Bombay Life)
were some of the companies established during the same period. Prior to 1912
2
India had no legislation to regulate insurance business. In the year 1912, the
Life Insurance Companies Act, and the Provident Fund Act were passed. The
Life Insurance Companies Act 1912 made it necessary that the premium rate
tables and periodical valuations of companies should be certified by an
actuary. But the Act discriminated between foreign and Indian companies on
many accounts, putting the Indian companies at a disadvantage.
The first two decades of the twentieth century saw lot of growth in insurance
business. From 44 companies with total business-in-force as Rs.22.44 crore, it
rose to 176 companies with total business-in-force as Rs.298 crore in 1938.
During the mushrooming of insurance companies many financially unsound
concerns were also floated which failed miserably. The Insurance Act 1938
was the first legislation governing not only life insurance but also non-life
insurance to provide strict state control over insurance business. The demand
for nationalization of life insurance industry was made repeatedly in the past
but it gathered momentum in 1944 when a bill to amend the Life Insurance
Act 1938 was introduced in the Legislative Assembly. However, it was much
later on the 19th of January 1956 that life insurance in India was nationalized.
About 154 Indian insurance companies, 16 non-Indian companies and 75
provident were operating in India at the time of nationalization.
Nationalization was accomplished in two stages; initially the management of
the companies was taken over by means of an Ordinance, and later, the
ownership too by means of a comprehensive bill. The Parliament of India
passed the Life Insurance Corporation Act on the 19th of June 1956, and the
Life Insurance Corporation of India was created on 1st September, 1956, with
the objective of spreading life insurance much more widely and in particular to
the rural areas with a view to reach all insurable persons in the country,
providing them adequate financial cover at a reasonable cost.
The figures for the first two months of the fiscal 2007-08 also speak of the
growing share of the private insurers. The share of LIC for this period has
further come down to 75%, while the private players have grabbed over 24%
share.
With the huge potential the market has, the Government should, more
seriously look into increasing the FDI cap in the sector said Mahendra K.
Sanghi, ASSOCHAM President.
During April-June 2005, the largest private company ICICI Prudential has
increased its share from 6.25% in 2004-05 to 7.68% in current fiscal.
The opening up of the sector has given some of the most innovative products
like the customized insurance policies and now the unit linked policies that
have gained much of customer attention. The sector has huge potential and
certain other new and innovative areas can also be looked into for enhancing
market share and premium income, said Sanghi.
HDFC is next in the row with 2.91% market share which has increased from
1.92% last fiscal followed by TATA AIG which now shares 2% of the market
from 1.18% last fiscal. Birla Sun lifes share has dropped from 2.45% during
FY05 to 1.76% in first two months of FY06. SBI life comes next with 1.72%
share and has infact dropped a few percent points from last year.Max New
York life and Aviva Life Insurance have captured more than 1% share each
from less than 1% share during FY05. Others like ING, AMP Sanmar, Met
Life and Sahara India have less than 1% share.
The details of the market share of life insurance companies are attached. The
market share of the private players has doubled every year from 5.6% in 200203 to 12% in 2003-04 and close to 22% in 2004-05.
The state run insurance company has the biggest advantage of its huge
network, which the company can use to penetrate into rural market that is still
lying untapped. Another option with the life insurance companies to capture
more and more market share could be product innovation and constantly
developing an insurance product in order to meet the ever-changing
requirements of the customer. Quality customer service and education can be
another area where a company can differentiate itself from other companies.
1.
Among other things, the contract also provides for the payment of premium
periodically to the Corporation by the policyholder. Life insurance is
universally acknowledged to be an institution, which eliminates 'risk',
substituting certainty for uncertainty and comes to the timely aid of the family
in the unfortunate event of death of the breadwinner.
That of dying prematurely leaving a dependent family to fend for itself. That
of living till old age without visible means of support.
ii)
At the time of taking a policy, policyholder should ensure that all questions
in the proposal form are correctly answered. Any misrepresentation, nondisclosure or fraud in any document leading to the acceptance of the risk
would render the insurance contract null and void.
Aid to Thrift:
I. Life insurance encourages 'thrift'. It allows long-term savings since payments
can be made effortlessly because of the 'easy installment' facility built into the
scheme. (Premium payment for insurance is either monthly, quarterly, half
yearly or yearly).
II.
For example: The Salary Saving Scheme popularly known as SSS, provides a
convenient method of paying premium each month by deduction from one's
salary.
III. In this case the employer directly pays the deducted premium to LIC. The
Salary Saving Scheme is ideal for any institution or establishment subject to
specified terms and conditions.
Tax Relief:
i)
Life Insurance is the best way to enjoy tax deductions on income tax and
wealth tax. This is available for amounts paid by way of premium for life
insurance subject to income tax rates in force.
ii)
Assesses can also avail of provisions in the law for tax relief. In such cases
the assured in effect pays a lower premium for insurance than otherwise.
ii)
iii)
Any person who has attained majority and is eligible to enter into a valid
contract can insure himself/herself and those in whom he/she has insurable
interest.
ii)
Policies can also be taken, subject to certain conditions, on the life of one's
spouse or children. While underwriting proposals, certain factors such as
the policyholders state of health, the proponent's income and other
relevant factors are considered by the Corporation.
LEGAL PRINCIPLES
Principle of utmost good faith : Contracts of insurance are based on mutual trust and
faith.
Principle of Low Penetration : Per Capita insurance premium in India, in 2000 was
$8 only against $4,800 in Japan. The life insurance premium was only 1.4% 0f GDP.
The penetration of non-life business is still lower at 0.56 percent of GDP. LIC and
GIC have able to tap only 10% of the market 90% is still untapped.
10
11
Chapter 2
Company Profile
12
COMPANY PROFILE
FOUNDER
Few men in history have made as dramatic a contribution to their countrys
economic fortunes as did the founder of Reliance, Sh. Dhirubhai H Ambani.
Fewer still have left behind a legacy that is more enduring and timeless.
As with all great pioneers, there is more than one unique way of describing the
true genius of Dhirubhai: The corporate visionary, the unmatched strategist,
the proud patriot, the leader of men, the architect of Indias capital markets,
the champion of shareholder interest.
But the role Dhirubhai cherished most was perhaps that of Indias greatest
wealth creator. In one lifetime, he built, starting from the proverbial scratch,
Indias largest private sector enterprise.
Through out this amazing journey, Dhirubhai always kept the interests of the
ordinary shareholder uppermost in mind, in the process making millionaires
out of many of the initial investors in the Reliance stock, and creating one of
the worlds largest shareholder families.
13
ABOUT RELIANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd. of the
Reliance - Anil Dhirubhai Ambani Group. Reliance Capital is one of Indias leading
private sector financial services companies, and ranks among the top 3 private sector
financial services and banking companies, in terms of net worth. Reliance Capital has
interests in asset management and mutual funds, stock broking, life and general
insurance, proprietary investments, private equity and other activities in financial
services.
Reliance Life Insurance is another step forward for Reliance Capital Limited
to offer need based Life Insurance solutions to individuals and Corporates.
14
Pensions
7. Reliance Golden Years Plan
(formerly Bhagya Shree)
Investments
8. Reliance Market Return Plan
(formerly Kanaka Shree)
9. Risk / Protection
10. Reliance Term Plan
(formerly Raksha Shree)
15
Chapter 3
Conceptual Discussion
16
CONCEPTUAL DISUCSSION
The concept of insurance is intimately related to security. Insurance acts as a
protective shield against risk and future uncertainties. Traditionally, a risk-averse
behavior has been a characteristic feature of Indians who preferred a low & certain
disposable income to a high & uncertain one.
Hence insurance has become a close associate of Indians since 1818, when Oriental
Life Insurance Company was started by Europeans in Kolkata to cater to the needs of
their own community. The age was characterized by intense racial discrimination as
Indian insurance policy holders were charged higher premiums than their foreign
counterparts. The first Indian Insurance Company to cover Indian lives at normal rates
was Bombay Mutual Life Assurance Society which was established in the year 1870.
By the dawn of the 20 th century, new insurance companies started mushrooming up.
In order to regulate the insurance business in India and to certify the premium rate
tables and periodic valuations of the insurance companies, the Life Insurance
Companies Act and the Provident Fund Act were passed to regulate the Insurance
Business in India in 1912. Such statistical estimates made by actuaries revealed the
disparity that existed between Indian and foreign companies.
The Indian Insurance Sector went through a full circle of phases from being
unregulated to completely regulated and then being partly deregulated which is the
present situation. A brief on how the events folded up is discussed as follows:
The Insurance Act of 1938 was the first legislation governing all forms of insurance to
provide strict state controls over insurance business.
In 19 th January, 1956, the life insurance in India was completely nationalized
through the Life Insurance Corporation Act of 1956. At that time, there were 245
insurance companies of both Indian and foreign origin. Government accomplished its
policy of nationalization by acquiring the management of the companies. Bearing this
objective in mind, the Life Insurance Corporation (LIC) of India was created on 1 st
September, 1956 which has grown in leaps and bounds henceforth, to become the
largest insurance company in India.
17
The General Insurance Business (Nationalization) Act of 1972 was formulated with
the objective of nationalizing nearly 100 general insurance companies and
subsequently amalgamating them into four basic companies namely National
Insurance, New India Assurance, Oriental Insurance and United India Insurance
which have their headquarters in four metropolitan cities.
The Insurance Regulatory and Development Authority (IRDA) Act of 1999
deregulated the insurance sector in India and allowed the entry of private companies
into the insurance sector. Moreover, the flow of Foreign Direct Investment (FDI) was
also restricted to 26 % of the total capital held by the Indian Insurance Companies.
While LIC is the is the sole operator in the public sector, the following is the list of
private companies in the Life Insurance Sector in India as on September, 2006:
A purchaser of insurance pays a fixed premium in exchange of promise of
compensation in the event of some specified economic loss. By policy may such
risks, insurance companies convert the uncertainty of an Individual loss into a
predictable expense? To understand the insurance business, we need to
understand the determination of insurance, premiums, the marketing of
insurance, and the special incentive problems.
Pricing of Premiums
For an insurance company, the proper pricing of premiums is a necessary
condition for profitability. If they are two low, the company will make loss. If
they are too high no one will buy the policies.
The pure premiums are the present value of the expected cost of a claim. The
cost of the claim should include the amount of the loss plus the expected cost of
processing the claim. When a claim is made, the insurer must determine the
extent of the loss and (this is called loss adjustment). For example, suppose the
loss is Rs.95000 and the related costs are Rs.5000, making it a total cost of
Rs.10,0000. Suppose the probability of the loss is 1/1000. Then the expected cost
is 0.001* 100000 = 100
18
Since the loss will be incurred some time after the premium is paid, the present
value of the expected lost should be taken. The discount rate to be used should be
marginal cost of funds to the insurer let us assume it is 10%. Then if the average
delay between the receipt of the premium and the payment of the claims is 6
months, the P.V. of the expected cost of the claim is 6 months, the P.V. of the
expected cost of the claim is 100/(1.10)0.5 = 95.36 This is the pure premium.
To price premiums accurately, the insurer needs to know the probability of loss
and the size of the claim. This is much easier for some types of insurance than at
is for others. For example, with life insurance, the probability of a claim is
actuarial. If is known with some reliability, and it is readily available.
The
amount of the loss is known too, because the policy pays a stipulated amount in
the event of death.
Pricing of premium for liability insurance is much more difficult. With liability
insurance, the insurer agrees to pay the cost of awards for legal liability against
the insured. For example, a manufacturer will carry product liability insurance.
This protects in the case it is sued by amount of the loss is uncertain it depends
on the discretion of the judge or jury. The probability of the loss is also harder to
calculate because part experience provides little guidance.
The actual premium is pure premium and administrative expenses. Total
administration express may amount to 25%-30% of the actual premium.
Marketing
A large part of the administrative costs associated with insurance is the cost of
marketing, which involves selling the products, screening risks, and writing
policies. Marketing costs alone may account for 15%-20% of premiums and the
reasons why they are so high is that insurance companies spend a lot on selling
efforts. A bank need do no more publicize its rates; it is hard to talk some one
into making large deposits. But people tend to under insure; they prefer not to
think about unpleasant possibilities so it is worth the companys while to hire
more salesmen.
19
Incentive Problems:
There are basically two problems with any insurance contract:
insured. For example, a shop owner may face the is the tendency choice between
two routes one safe but slow the other fast but risky. Without insurance the
shop owner chooses the safe route: with insurance, he chooses the fast route.
and better risk not to. For example, suppose the price of insurance is the same
for all ships. The owners of ships that are in poor shape will find the insurance
20
more attractive and will be more likely to purchase it, than owners of sound
ships.
Moral hazards and adverse selection are problem because they raise the cost of claims
to the insurer. Dealing with these problems requires, safe guards. For example, the
insurance contract might require the ship to take safe route, insurers might inspect a
ship before writing insurance. Safe guards one costly and require costly monitoring.
21
Chapter 4
Data Anlaysis
22
DATA ANALYSIS
1.
Valid poor
fair
good
excellent
Total
Frequency
2
16
50
32
100
Percent
2.0
16.0
50.0
32.0
100.0
Valid
Cumulative
Percent
Percent
2.0
2.0
16.0
18.0
50.0
68.0
32.0
100.0
100.0
50
Fr
e
q
u
e
n
cy
40
30
20
10
0
Poor
Fair
Good
Excellent
23
Valid
Cumulative
Percent
Percent
5.0
5.0
Frequency
5
Percent
5.0
7.0
7.0
12.0
45
43
100
45.0
43.0
100.0
45.0
43.0
100.0
57.0
100.0
50
Freq
uenc
y
40
30
20
10
0
Not Important
Moderately important
Important
Very Important
Analysis of the above Diagram-From the above diagram, we can conclude that
45% respondents believe that Return on Investment is important, while 43% of the
respondents believe that is very important. So 88% of the respondents recognized the
importance of Life insurance as an investment. Whereas only 17% believe it ranges
from moderately important to not important.
24
3.
Valid
Cumulative
Percent
Percent
1.0
1.0
Frequency
1
Percent
1.0
16
16.0
16.0
17.0
51
32
100
51.0
32.0
100.0
51.0
32.0
100.0
68.0
100.0
not important
moderately important
important
very important
25
Valid
Cumulative
Percent
Percent
1.0
1.0
Frequency
1
Percent
1.0
4.0
4.0
5.0
48
47
100
48.0
47.0
100.0
48.0
47.0
100.0
53.0
100.0
50
Fr
e
q
u
e
n
cy
40
30
20
10
Mean =3.41
Std. Dev. =0.621
N =100
0
0.00
1.00
2.00
3.00
4.00
5.00
Analysis of the Above Diagram- In the above Dig. The rank 1 stands for Not
Important, whereas the rank 4 stands for Very Important. The Mean Result generated
is 3.41 which implies the central tendency or the average for selecting Life Insurance
is slightly more than Important and less than very important.
26
Valid
Cumulative
Percent
Percent
4.0
4.0
Frequency
4
Percent
4.0
8.0
8.0
12.0
40
48
100
40.0
48.0
100.0
40.0
48.0
100.0
52.0
100.0
AA
50
Fr
e
q
u
e
n
cy
40
30
20
10
0
Not important
Moderately Important
Important
Very Important
27
Valid assurance
savings
high return
tax benefit
old age
benefit
Total
Frequency
17
10
16
42
Percent
17.0
10.0
16.0
42.0
Valid
Percent
17.0
10.0
16.0
42.0
15
15.0
15.0
100
100.0
100.0
Cumulative
Percent
17.0
27.0
43.0
85.0
100.0
50
Fr
e
q
u
e
n
cy
40
30
20
10
0
Assurance
Savings
High Return
Tax Benefit
Analysis of the above Diagram-Tax benefit was cited as the most important
reason by 42 % of the respondents. The other factors stand very close to each other,
Assurance as a reason stands at 17%, High Return at 16%, Old Age Benefit at 15%
and Savings at 10%
28
Percent
Valid
Percent
Cumulative
Percent
23
23.0
23.0
23.0
31
31.0
31.0
54.0
22
22.0
22.0
76.0
24
24.0
24.0
100.0
100
100.0
100.0
40
Fr
e
q
u
e
n
cy
30
20
10
0
Rs.5000-Rs.25000
Rs.25000-Rs.45000
Rs.45000-Rs.75000
29
Valid
Cumulative
Percent
Percent
4.0
4.0
Frequency
4
Percent
4.0
24
24.0
24.0
28.0
47
25
100
47.0
25.0
100.0
47.0
25.0
100.0
75.0
100.0
50
Fr
e
q
u
e
n
cy
40
30
20
10
0
Not Important
Moderately Important
Important
Very Important
30
Valid Spouse
Children
Yourself
Whole
Family
Total
Valid
Cumulative
Percent
Percent
11.0
11.0
9.0
20.0
29.0
49.0
Frequency
11
9
29
Percent
11.0
9.0
29.0
51
51.0
51.0
100
100.0
100.0
100.0
60
50
Fr
e
q
u
e
n
cy
40
30
20
10
0
Spouse
Children
Yourself
Whole Family
Analysis of the above Diagram- When the respondents were asked whom they
kept in mind while buying a Life Insurance Policy a majority i.e. 51% of them replied
that they kept in mind the Whole Family.29% said they buy Life Insurance
considering Self.11% replied that they consider their Spouse while buying Life
Insurane and 9% said that they consider their Children.
31
Chapter 6
FINDIGNS AND
RECOMMENDATIONS
32
FINDINGS
1)
INSURANCE Insurance
3)
Various companies are paying fixed salary when an advisor reaches its
targets, which attracts the potential advisors to opt for those companies,
Therefore RELIANCE LIFE INSURANCE should consider paying some
amount as fixed salary which will considerably increase the response.
4)
33
RECOMMENDATIONS
The following are the critical points of consideration for the under writing
processors at Reliance Life The underwriters at Reliance Life must satisfy himself / herself whether the
information and the information called for fit together Does it make sense?.
The underwriter must assess whether there any reason to believe that the life
insured might take his life.
Are there any financial incentives, which may incite someone to murder the
life assured?
Does the life insured have the financial ability to continue to pay premiums
not only now, but also into future?
Whether all the documents are completed or not?
Considering the challenges in the Indian market the need of developing robust
underwriting process for collecting information is must. at Reliance Life should
always establish the insurable interest and the need of cover before taking any
decision. The facts should be considered altogether in totality before reaching any
final decision and underwriter should not do any guesswork at all. Remember A
good company will always call for required information at application stage
rather than claim stage.
34
ANNEXURE
QUESTIONNAIRE
1.
How would you rate Life Insurance as a means of investment vis- vis
other forms of Investments?
2.
3.
Poor
Fair
Good
Excellent
Return on Investment as factor for selecting Life Insurance policy.
not important
moderately important
important
very important
4.
5.
not important
moderately important
important
very important
Tax rebate as factor for selecting insurance policy
Not important
Moderately Important
Important
Very Important
35
6.
7.
8.
Rs.5000-Rs.25000
Rs.25001-Rs.45000
Rs.45001-Rs.75000
Rs.75000 and above
Does Advertisement play important role while buying Life Insurance.
9.
not important
moderately important
important
very important
Whom do you keep in mind while taking a Life Insurance policy?
Spouse
Children
Yourself
Whole Family
36
BIBLIOGRAPHY
1.
2.
WEBLIOGRAPHY
1.
www.ingvysyalife.com
2.
www.reliancelifeinsurance.com
37